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Canadian Tire profits jump 22 per cent on strong sales everywhere

Canadian Tire Corp. reported a 22 per cent increase in third-quarter profit on Thursday and incoming chief executive officer Michael Medline said the retailer is ready to turn in another strong performance in the fourth quarter.

“Canadian Tire is on a roll right now, pun intended,” Medline said during a conference call with analysts on Thursday to discuss earnings.

Medline, president of Canadian Tire, officially takes over as CEO on Dec. 1, replacing Stephen Wetmore.

“All our major projects are on time and on budget,” said Wetmore. “I have total confidence in Michael and the team to continue to drive strong performance.”

The Toronto-based company posted $178.2 million in net income for the 13-week period ending Sept. 27. The profit amounted to $2.17 per diluted share, compared to $145.5 million, or $1.79 per share, in the same quarter a year earlier.

Revenue increased to $3.07 billion versus $2.96 billion a year ago. Sales at Canadian Tire stores, fuel stations and financial services grew by 3.7 per cent. FGL Sports, which operates SportChek and Pro Hockey Life stores, saw a 13 per cent bump in sales, while sales at Mark’s jumped 6.5 per cent year over year.

For the quarter, same-store sales at Sport Chek increased 11.2 per cent, while the same key measurement at Mark’s stores was up 6.8 per cent. Canadian Tire saw same-store sales growth of 3.2 per cent.

A decision to offer Mark’s customers a bigger selection of jeans, including name-brand jeans, resulted in a double-digit sales lift in denim, Medline said.

“The strong performance this quarter is very rewarding given that it was achieved against a strong quarter last year and reflects the successful culmination of our recent efforts to strengthen our brand and improve the in-store experience across our retail businesses,” said Stephen Wetmore, CEO, Canadian Tire Corporation.

Correction – November 6, 2014: This article was edited from a previous version that mistakenly said Canadian Tire is increasing its quarterly dividend. In fact, it is an annual dividend.

The company’s new loyalty program has exceeded expectations and more benefits will flow as the retailer collects data on purchases in order to better market to consumers, he added.

Canadian Tire believes it is taking market share from other retailers, but also growing the market itself.

The retailer is also benefiting from a modest improvement in the economy, said Mary Turner, president of Canadian Tire Bank and chief operating officer of Canadian Tire Financial Services.

Medline added that he wants each of the banners to offer world-class e-commerce within three years.

Medline was also asked how much of a challenge Target turned out to be.

“It’s been less than we anticipated and less than we planned for. Canadian Tire did a good job of getting ready.”

In a note to investors, BMO Nesbitt Burns Inc. analyst Peter Sklar said that while same-store sales results were impressive, earnings in the quarter were also favourably impacted by a lower-than-expected tax rate.

He also pointed out that retail gross margins, excluding petroleum, were down.

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“Overall, we would characterize the Q3/14 results as ‘mixed’,” he concluded.

In addition to its latest earnings, the retailer also announced that it’s increasing its annual dividend to $2.10 per share on each common and class A non-voting share. The dividend is payable on March 1 to shareholders of record as of Jan. 31, 2014.

Founded in 1922, the company has nearly 1,700 retail stores and gasoline outlets across the country. In addition to SportChek, FGL Sports operates as Hockey Experts, Sports Experts, National Sports, Intersport and Atmosphere.

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